Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: also listen to our radio show weekdays at two pm
Speaker 1: Eastern only on Bloomberg Radio. This is the Fed Decides
Speaker 1: on Bloomberg Television and Bloomberg Radio. I'm Scarlet Food. We
Speaker 1: are awaiting the final FED decision of the Central Banks.
Speaker 1: F o MC is expected to keep its interest rate
Speaker 1: unchanged after three street cuts this year. We await the
Speaker 1: announcement at the top of the hour, followed by Fed
Speaker 1: Chief j Pal's news conference in just over thirty minutes.
Speaker 1: Here with me are my co host, Jason Kelly and
Speaker 1: Carol Masser. Do you think we're going to hear in
Speaker 1: a good place again? It feels like it feels like
Speaker 1: we're in a good place. We keep hearing that from
Speaker 1: everyone we talked to, right, Yeah, And I think what's
Speaker 1: really key is what's the bar for the FED to
Speaker 1: actually start thinking about raising rates at this point? Because
Speaker 1: I don't think anybody expects any kind of movement today,
Speaker 1: but I think what happens down the road, and how
Speaker 1: far down the road, that bar is pretty high right now?
Speaker 1: All right? Joining us is Scott Minor, Guggenheim Global CEIO
Speaker 1: and Guggenheim Partner's co founder. His for manager is more
Speaker 1: than two sixty five billion dollars in assets, and Jeff Rosenberg,
Speaker 1: Black Rock Systematic Fix Income Senior portfolio manager. Jeff, what
Speaker 1: will you be listening for? Well, you know, last time
Speaker 1: we were here, I think the big story was this
Speaker 1: notion of asymmetry. And what I mean by asymmetry is
Speaker 1: this is a FED that is very much willing to
Speaker 1: see inflation rise and will be very quick to act
Speaker 1: on any signs of inflation falling. And I think he's
Speaker 1: going to reiterate that message. It's a really important message
Speaker 1: for investors because it really underlies the importance of bonds
Speaker 1: in a portfolio, because we don't need to worry about
Speaker 1: a repeat of two thousand and eighteen, your question a
Speaker 1: second ago. This is going to be a very different FED.
Speaker 1: Will be interesting to see whether they tipped the hat
Speaker 1: at all about the policy review and moving to average
Speaker 1: inflation targeting. That's a new regime, and that's a regime
Speaker 1: where I FED is much more willing to see inflation. Ryan,
Speaker 1: And it's not December of twenty eight we've been talking
Speaker 1: about this. I should say, right where j Pale? You
Speaker 1: know you saw that he said some things that really
Speaker 1: disturbed the market. Scott, Right, Well, I think he's gotten
Speaker 1: a lot better since then, and uh, you know he's
Speaker 1: he's better at communicating. But the thing that I think
Speaker 1: is going to be very interesting is when he makes
Speaker 1: his statement. I think he's going to focus a lot
Speaker 1: on the funding markets and I I think that the
Speaker 1: conversation day is going to be dominated about what's going
Speaker 1: on with REPO? Can the FED really fix this? And
Speaker 1: you know a lot of technical stuff that only people
Speaker 1: like us can really enjoy. Well, did the b I
Speaker 1: S Report change anyone's thinking on what happened and how
Speaker 1: the FED address of issues there? Well, it may have
Speaker 1: changed some people's thinking. A lot of us knew how
Speaker 1: much there was in market in leverage. You know, I'm
Speaker 1: gonna let's make it interesting, Scott, because the meeting itself
Speaker 1: isn't going to be that interesting. I'm going to disagree
Speaker 1: with that. Wait, don't put it down, but I think
Speaker 1: I think Powell doesn't want to make this about the
Speaker 1: repo market. He wants to separate monetary policy from the
Speaker 1: technical aspects of liquidity and the repo markets. And the
Speaker 1: more he addresses the repo markets in a monetary policy
Speaker 1: press conference, the more he conflates the two issues. I
Speaker 1: agree with you. People are gonna want to ask the
Speaker 1: issue because it's an important issue, But I think he's
Speaker 1: gonna want to try to clearly make that separation. Well,
Speaker 1: you may be right. I mean, he may just want
Speaker 1: to avoid it altogether. But you know, history shows us
Speaker 1: that that might not be the best approach. And so
Speaker 1: I'm not sure if the speech writers have maybe prepped
Speaker 1: him with something, because it's gonna come up for sure.
Speaker 1: Either way, he'll probably make the point and stress the
Speaker 1: point that it's not Kuweie. Let's check in. When Mike
Speaker 1: McKee at the Federal Reserve, Mike as boring as forecast
Speaker 1: no change in rates today, and the plot shows the
Speaker 1: consensus is no need for a rate move next year either,
Speaker 1: as they stand hold through the election. Nobody is calling
Speaker 1: for a rate cut next year, and only four of
Speaker 1: seventeen see the need for any rate increase. Nobody dissented
Speaker 1: today either. The first unanimous decision since may notoriously unreliable
Speaker 1: this far out, but the consensus dot suggests one basis
Speaker 1: point move in one at another in twenty two. The
Speaker 1: long run neutral rate, though, remains at two and a
Speaker 1: half percent. As for today's decision to leave rates in
Speaker 1: the range of one and a half to one and
Speaker 1: three quarters percent, The statement says the Committee judges that
Speaker 1: the current stance of monetary policy is appropriate to support
Speaker 1: sustained expansion of economic activity, strong labor market conditions, and
Speaker 1: inflation near the committee's symmetric two percent objective. The statement
Speaker 1: drops the observation that uncertainties about the outlook remain. Instead,
Speaker 1: it says they will quote continue to monitor the implications
Speaker 1: of incoming information for the economic outlook, including global developments
Speaker 1: and muted inflation pressures, as it assesses the appropriate path
Speaker 1: of the target range for the federal funds rate. The
Speaker 1: economic outlook word for word the same as September, except
Speaker 1: that business fixed investment and exports, which had weekend last time,
Speaker 1: remain weak. In this statement. The policymakers economic projections also
Speaker 1: changed very little, except for unemployment. They now see a
Speaker 1: three and a half percent job rust rate by the
Speaker 1: end of next year. That's two tenths lower than they
Speaker 1: saw in September, three point six percent in three point
Speaker 1: seven percent in two, both also down to tenths. The
Speaker 1: long run NEHRU rate now four point one percent, a
Speaker 1: tenth lower than forecast three months ago. The growth and
Speaker 1: inflation forecasts unchanged two percent GDP in slowing to one
Speaker 1: point nine percent in one eight percent in two, while
Speaker 1: PC headline and core inflation one point nine percent next
Speaker 1: year two from then on. And I know you guys
Speaker 1: were talking about this. Finally, no change in balance sheet direction,
Speaker 1: T bill purchases into at least the second quarter of
Speaker 1: next year, and overnight repose and term repos at least
Speaker 1: through January. Alright, Mike McKee at the federal reserve as
Speaker 1: boring as it as was expected, and you're kind of
Speaker 1: seeing that when you look at the market reaction, the
Speaker 1: thirty year yield staying down as you can see they're
Speaker 1: off by four basis points a ten year yield the
Speaker 1: two year yield not really straying that much either. They're
Speaker 1: both lower as well, indicating a rise in prices. US
Speaker 1: equity indexes are mixed. They were beforehand. The sp Marsley,
Speaker 1: the doubt off Marsley, and dollar yen now basically unchanged. Jason, Wow, boring,
Speaker 1: but we're gonna make it exciting. You are listening and
Speaker 1: watching the FED decides here on Blueberg Television and Radio,
Speaker 1: and Jason Kelly, alongside Carol Master and Scarlett Food still
Speaker 1: with us to break it down. Googgenheim's, Scott Minor and
Speaker 1: Black Rocks. Jeff Rosenberg, Jeff, let me start with you. Boring.
Speaker 1: But boring's okay, Well, boring in the sense that it's
Speaker 1: market expectations, right. There's a lot of information in there.
Speaker 1: There's tremendous amounts of information, but it's all pretty much
Speaker 1: as expected. I'll focus on the dot plot because that
Speaker 1: often moves the market. Not going to move the market here,
Speaker 1: pretty much as consensus expected. One hike in twenty one,
Speaker 1: another hike in twenty two, but nothing in and the
Speaker 1: longer run dot no change. There was some possibility there'd
Speaker 1: be a change there that might have moved the back end.
Speaker 1: They didn't do it here. So boring in the sense
Speaker 1: that that's pretty much as expected. But what is it
Speaker 1: telling you. It's telling you this is a FED that
Speaker 1: is on pause for a long time. It's a different
Speaker 1: regime for FED policy making. And even if they do
Speaker 1: start raising rates, they're barely raising rates. This is a
Speaker 1: far cry from normalization from years ago. For those on radio,
Speaker 1: and of course on TV, we're showing dots go on
Speaker 1: the Bloomberg terminals. So taking a look at the dot plot,
Speaker 1: and I should point out that thirteen of seventeen officials
Speaker 1: expect no change in borrowing costs for so it seems
Speaker 1: like all in in terms of what we get. Scott, though,
Speaker 1: I do want to ask, coming off of that, you
Speaker 1: feel like we have enough visibility at this point, especially
Speaker 1: it's an election year and there are still some major
Speaker 1: issues out there now, Carol, I don't think we have
Speaker 1: good visibility at all. And you know, it's it's interesting
Speaker 1: because when you look at what history has sold us
Speaker 1: that about nine months after the last rate cut, the
Speaker 1: FED is back in the mode of raising rates. When
Speaker 1: we're in one of these mid cycles slowdowns. So if
Speaker 1: it truly is a mid cycle slowdown, I mean I
Speaker 1: would anticipate we should probably see an acceleration of growth
Speaker 1: in the second half of next year, and that the
Speaker 1: Fed would try to respond to it. Another thing, though,
Speaker 1: that was really subtle. That was interesting here is they
Speaker 1: left they state the neutral rate is at two and
Speaker 1: a quarter, but they said that the short term rate
Speaker 1: was appropriate, which means in their mind policy must be stimulative. Um,
Speaker 1: it's not neutral. So you know, stimulative policy should spill
Speaker 1: over into the real economy. And uh, you know when
Speaker 1: I when I made these kinds of observations during the
Speaker 1: financial crisis, people never believe that we would get to
Speaker 1: turn around by the third quarter of two thousand nine,
Speaker 1: And so you know, I think by the time we
Speaker 1: get to the third quarter of next year, things could
Speaker 1: look a lot for eleven years in right, Yeah, exactly. Well,
Speaker 1: things have changed a lot, of course INCEO and twelve
Speaker 1: months ago, especially Mike McKee still have the federal reserve there.
Speaker 1: How much did the November jobs report, the blockbuster jobs
Speaker 1: report really help, how in avoiding having to take any
Speaker 1: action to come around and having to tilt wish or
Speaker 1: hawkish in the near term. It'll be an interesting question
Speaker 1: to ask the members of the committee because obviously it
Speaker 1: validated the stance of policy right now. We also know
Speaker 1: if you look at the graph of non farm payrolls
Speaker 1: that months where we have a really outsized gain unexpected gain,
Speaker 1: the next month is kind of a makeup and you
Speaker 1: have a lower than expected increase, so that could happen.
Speaker 1: They don't look at one month, however, they kind of
Speaker 1: look farther out. I did want to pick up on
Speaker 1: something that Scott said, and uh, do a little advertisement
Speaker 1: for the Bloomberg here, and this will drive the people
Speaker 1: on radio crazy, but they can go home and uh
Speaker 1: sign into the Bloomberg and look at dots go because
Speaker 1: they've changed it a little bit now and there's a
Speaker 1: bar across the top where it says custom and you
Speaker 1: can put in a day. You go back to two
Speaker 1: thousand twelve, and you can see what the forecasts were
Speaker 1: on the dot plot compared to where they are now,
Speaker 1: and it just shows you how completely unreliable they are.
Speaker 1: They don't have visibility and everything is going to change.
Speaker 1: But if you're trading right now, you've got to trade
Speaker 1: on what they're telling you. At the moment, which raises
Speaker 1: a question, and I'll pose this to Jeff, but Scott
Speaker 1: can jump in as well. The long run neutral rate
Speaker 1: doesn't change, as we pointed out, two and a half percent,
Speaker 1: but in twenty twenty two they're still at two point
Speaker 1: one percent. Does that suggest that maybe their neutral rate
Speaker 1: is a little high. Yeah, it's it's certainly may and
Speaker 1: it's come down in terms of you also saw it
Speaker 1: in terms of the NEHRU coming down as well in
Speaker 1: the forecasts. And so this is a FED that is
Speaker 1: tilting towards accommodation because of both the risks of the outlook,
Speaker 1: but also at the point I made at the beginning,
Speaker 1: the asymmetry with respect to the outlook for inflation, and
Speaker 1: and that'll be interesting for me. I think in the
Speaker 1: press conference, does heat up this change in the policy
Speaker 1: reaction function that says we're willing to be late, we're
Speaker 1: willing to be operating different. This is no longer a
Speaker 1: preemptive FED, is a FED that is trying to UH
Speaker 1: generate inflationary UH pressures. And that's partly what you see
Speaker 1: I think in those in that path of those dots, right,
Speaker 1: But I also think it reflects that the FED is
Speaker 1: groping in the dark here, right, nehru Why we're not
Speaker 1: getting wage acceleration really? Or were inflation here? So you know,
Speaker 1: why why is nehru above four percent um? You know,
Speaker 1: I'm old enough to remember when people thought Nahru was
Speaker 1: three percent um? You know. The the other thing that's
Speaker 1: interesting is, you know this whole thing with the neutral rate.
Speaker 1: I mean some of the members of the committee actually
Speaker 1: believed the real neutral rate is negative. So you know,
Speaker 1: maybe the neutral rate isn't two and a half or
Speaker 1: two and a quarter, maybe it's closer to one and
Speaker 1: a half and so and and that's the kind of
Speaker 1: debate I think they're having internally, and they're they're just
Speaker 1: groping in the dark to figure out what to do
Speaker 1: at this point because they're in unexplored territory. Well, Scott,
Speaker 1: speaking to that debate, I'm just looking at our Steve Matthews.
Speaker 1: We're looking at the FED blog, the live blog that's
Speaker 1: going on as well. Most of the committees do expect
Speaker 1: higher rates in one there's a large dispersion of where
Speaker 1: committee participants expect rates to go. All in all, this
Speaker 1: is a devish message. I mean, there is a lot
Speaker 1: of still questions out there. I do wonder among the
Speaker 1: big macro stories that are out there, whether it's trade,
Speaker 1: whether it's the elections, some other issues, what are the
Speaker 1: ones that you're watching, um Jeff, that you think could
Speaker 1: maybe changed and really impact the FED come. Well, this
Speaker 1: is this is a world in which everything is upside down.
Speaker 1: The FED and markets don't focus on the outcome for
Speaker 1: what it means for financial markets. But the other way around,
Speaker 1: the FED focuses on financial markets for what it means
Speaker 1: for their activities, meaning financial conditions is in the driver's seat,
Speaker 1: and so what will move the FED and the dot
Speaker 1: plot and FED policy is what happens to financial conditions.
Speaker 1: And so the number one consideration today is trade policy
Speaker 1: and the trade fight that we're having, the trade war
Speaker 1: that we're having, and how that resolves. Markets have jumped
Speaker 1: to a conclusion no tariffs imposed on December, smooth sailing,
Speaker 1: everything's gonna be fine. So you're vulnerable if it isn't.
Speaker 1: And the vulnerability and financial markets means there's a spike
Speaker 1: in volatility, and that's what drove the FED back into
Speaker 1: the markets to move from hiking to cutting. That's what
Speaker 1: would move the FED. I think most likely in this environment.
Speaker 1: Mike McKee down in Washington, I want to ask you
Speaker 1: what you make of the FED stands on the repo market,
Speaker 1: especially given that is a story that has dominated Bloomberg
Speaker 1: headlines over the past couple of months. We spent a
Speaker 1: lot of time talking about it on our show. I
Speaker 1: know Scarlett has as well, and I know you have
Speaker 1: Where are we on that question? Yeah, well, the statement
Speaker 1: doesn't move us anywhere on that question, but I think
Speaker 1: Jeff had the point earlier that it was corrected. They
Speaker 1: want to keep that separate from monetary policy at this point.
Speaker 1: They don't want it to be seen as any form
Speaker 1: of policy making, any form of QUEI. So if there
Speaker 1: is to be any kind of announcement or any kind
Speaker 1: of change, it may come from j Pole in the
Speaker 1: in the press conference, But I would put it to
Speaker 1: Jeff and uh to Scott. You're looking at right now
Speaker 1: reports from the b I s that it wasn't a
Speaker 1: one time confluence of random events in September, that there
Speaker 1: are structural and regulatory problems out there. And then you
Speaker 1: have that that note that went around yesterday from Zoltime
Speaker 1: Posar of Credit Suites suggesting we could have big problems
Speaker 1: at the turn of the year. What would you like
Speaker 1: to hear, j P. I will say, what what's needed
Speaker 1: for the markets at this point? Well, look, Mike, I
Speaker 1: think that the problem here is beyond the control of
Speaker 1: the FED. UH. I think they understand that macroprudential policy
Speaker 1: that was set up UH. You know in the wake
Speaker 1: of the financial crisis has created a matrix of regulation
Speaker 1: which we're now starting to find the limitations on UM
Speaker 1: and so, you know, regulations like the g SIB which
Speaker 1: basically sets leverage ratios for the banks. UH. That gets
Speaker 1: set at the end of every year, and the banks
Speaker 1: traditionally sort of go above the ratio until December thirty
Speaker 1: one and then they shrink their balance sheets suddenly at
Speaker 1: the end of the year. That's going to cause a
Speaker 1: lot of issues coming into the end of the year
Speaker 1: and its issues I think that are beyond the control
Speaker 1: of the FED. UM. The repo market is dominated by
Speaker 1: four banks. UM, they can't you know, the transmission mechanism
Speaker 1: of these banks aren't willing to expand their balance sheet.
Speaker 1: I'm not sure how the liquidity flows from the FED
Speaker 1: to the markets. And UH, I think they have a
Speaker 1: bigger structural issue here which is outside of their control.
Speaker 1: So we're talking with Jeff earlier about financial conditions and
Speaker 1: how that will drive the FED in twenty If you
Speaker 1: bring in the repal market and the funding pressures we've
Speaker 1: seen and the fact that it will kind of continue
Speaker 1: to be an irritant, could the repal market squeeze end
Speaker 1: up infiltrating financial markets and affecting financial conditions to the
Speaker 1: point where the FED then has to respond to that.
Speaker 1: I know we're getting circular here. Sure, I don't think
Speaker 1: we're gonna the repo market. It will self. I think
Speaker 1: I can get really sloppy going into the end of
Speaker 1: the year. I think we could have a lot of
Speaker 1: dislocation because if you can't finance this collateral, the only
Speaker 1: other option is to sell it. So we could see,
Speaker 1: you know, some some significant sell offs going to the
Speaker 1: end of the year in fixed income in particular. But
Speaker 1: you know, the thing that I've you know, Jeff is
Speaker 1: talking about the uncertainty, and the thing that I find
Speaker 1: interesting is this skew in options pricing. Uh. You know,
Speaker 1: all the put buying that's going on around next year. Uh,
Speaker 1: and the election looks a lot like what was going
Speaker 1: on back in two thousand and sixteen before the election.
Speaker 1: And so you know, history shows us that when you
Speaker 1: have this much sort of hedging occurring in the market,
Speaker 1: that once you know, you get past the risk event,
Speaker 1: if you haven't had some major bad piece of news,
Speaker 1: it's we're likely to get a lift in stock prices
Speaker 1: and risk assets across the board. All right, So we
Speaker 1: could see some big moves later on. Mike McKie, I
Speaker 1: know you're about to head into the news conference that J.
Speaker 1: Paulb be hosting in about fifteen minutes time. What kind
Speaker 1: of I mean? I know that you're not going to
Speaker 1: give us the exact question, but gives a sense of
Speaker 1: where you're really gonna russ him? Well, I think we
Speaker 1: want to know if there is any kind of concrete
Speaker 1: or or clear explanation of what the Fed's reaction function
Speaker 1: is now. Is it inflation that they're watching that would
Speaker 1: cause them to maybe change their their forecast, their outlook
Speaker 1: for rate moves. And obviously there are questions about the
Speaker 1: repole market. We were laughing today. We could ask about
Speaker 1: Steven Strasburg and Garrick Cole's new baseball contractor they're gonna
Speaker 1: be pushing wage inflation higher. Uh, at this point we
Speaker 1: could ask him anything like that. Well, Mike, I gotta say,
Speaker 1: I don't think it will be at the Dodgers. Yeah, alright,
Speaker 1: looking forward to those questions. All right, our thanks to
Speaker 1: Bloomberg's Michael McKee. He'll rejoin us after FED here j
Speaker 1: Powell's news conference, and we'll get back to Mike shortly.
Speaker 1: I do want to continue, We do want to continue
Speaker 1: with our roundtable here. So, Jeff, I do wonder about
Speaker 1: kind of though this subpar growth, I mean, do we
Speaker 1: start to see um growth at all pick up in
Speaker 1: your view and term of the U. S economy? Well,
Speaker 1: you know, I think we've got to unpack what you
Speaker 1: mean by subpar growth because this growth is actually above potential,
Speaker 1: and it's you know, while potential one in three quarters
Speaker 1: is subpar relative to history, forget the history. The world
Speaker 1: has moved on, demographics has changed, productivity has changed. We're
Speaker 1: outperforming our potential. So this is actually quite good growth. Uh.
Speaker 1: And as as Scott said, there's a case to be
Speaker 1: made that it could get that much better because we're
Speaker 1: providing accommodation. Housing is turning, the labor markets are are
Speaker 1: quite strong. So I think the growth picture, at least
Speaker 1: in the US is good. Now globally there's a subpar story,
Speaker 1: and that's certainly been a big part of uh this
Speaker 1: year's recession, fears that the US would import the world
Speaker 1: subpar growth. But next year we could flip that around
Speaker 1: and the US could export it's above par growth to
Speaker 1: the rest of the world. UH So, I think the
Speaker 1: FED is a little bit less concerned about the growth
Speaker 1: picture and a bit more concerned about the inflation picture
Speaker 1: thereof exactly, but from too little. And that gets you
Speaker 1: again to this asymmetry on the inflation and that's really
Speaker 1: their problem, and it's a problem that they think they
Speaker 1: have the tools because inflation is a monetary uh component,
Speaker 1: and they're going to be focused on how do we
Speaker 1: get inflation back up and how do we avoid deflation
Speaker 1: and really did the deflation in inflation expectations, because that's
Speaker 1: the concern. Well, Scott, we could talk a little bit
Speaker 1: more about baseball. I would love to do that, But
Speaker 1: related to that, let's let's talk a little bit about
Speaker 1: the consumer and maybe the CEO, the typical CEO who
Speaker 1: you're talking to, how is he or she feeling as
Speaker 1: they're reading this from the FED and looking forward to
Speaker 1: j Powe, Well, I think, look, I think that your
Speaker 1: typical CEO is trying is basically putting everything on hold. Um,
Speaker 1: we have all these questions around charade, the supply chain,
Speaker 1: and you see it in expectations for investment next year.
Speaker 1: So I think most of them are just focused on,
Speaker 1: you know, how do I milk as much productivity out
Speaker 1: of this as I can? When you know, as Jeff
Speaker 1: was talking about, you know, you aren't you know, we're
Speaker 1: not seeing runaway wage pressure, but you know, we are
Speaker 1: seeing wages grow between three and three and a half percent,
Speaker 1: and you know, when you have margin pressure, I think
Speaker 1: they're going to be focusing on that more than anything.
Speaker 1: But they're not building a new factory that there. We're
Speaker 1: not talking about huge expansion for a lot of C
Speaker 1: E s now. And I think that you know, this
Speaker 1: is one of the unintended consequences of the trade policy,
Speaker 1: is that the advantages that were offered in the Tax Act,
Speaker 1: of immediate expensings, of capital expenditure, all these things that
Speaker 1: you think we'd be out there just going to town
Speaker 1: on the uncertainty around uh, you know, the the the
Speaker 1: supply chain. Uh, you know where where in the world
Speaker 1: you invest is got people, you know, basically biding their time,
Speaker 1: waiting for a better opportunity. Three rate cuts don't make
Speaker 1: the CEOs feel any better about wanting to to put
Speaker 1: their money to work. You know, it's interesting when I
Speaker 1: talk to people about the economy, I get a fair
Speaker 1: amount of pessimism. Um, you know people are you talking
Speaker 1: to well Carol, okay, Well here's the deal. You talked
Speaker 1: to a lot of people and it doesn't feel so good.
Speaker 1: And you do have folks who running companies that are hesitant.
Speaker 1: And I think about three months ago August, we were
Speaker 1: talking constantly about recession. There were there was a lot
Speaker 1: of nervousness. And here we are today, like things swing back.
Speaker 1: So where are we fundamentally well, fundamentally, I think we're
Speaker 1: in a good place. I mean, you know, again it's
Speaker 1: a little defensive, Jeff. Jeff commented, I mean, you know,
Speaker 1: we we have solid job growth, we have wage growth.
Speaker 1: You know, the consumer is really pulling this thing along.
Speaker 1: If you want to get near term. You know, the
Speaker 1: correlation between stock prices and Christmas sales is very strong.
Speaker 1: You've got year over year sales. Maybe in the neighborhood
Speaker 1: of five percent or more, which is a big piece
Speaker 1: of consumption. So you know, uh, you know, things look
Speaker 1: pretty good, and I think that uh uh, you know,
Speaker 1: as we go into the next year, we now have
Speaker 1: the e c B back in the mode of expanding.
Speaker 1: It's a balance sheet. We've got the Fed expanding its
Speaker 1: balance sheet. I know it's not quantitative easy, but I
Speaker 1: do think it's large scale asset purchases. Um and um,
Speaker 1: I know, uh and uh. You know. The other thing
Speaker 1: is that the Germans are finally coming around and who
Speaker 1: you know, everybody's complained in Europe that they haven't taken
Speaker 1: lead with physical stimulus. Now Merkel is being forced into
Speaker 1: that mode and you know, we'll see you know, some
Speaker 1: stimulus out of you know, Europe. So you know why
Speaker 1: there are so many people putting on more put positions.
Speaker 1: Why are you know, there's more stories about planning for
Speaker 1: risk in so why are we getting that. Let's not
Speaker 1: conflate financial markets and economies those two can be just so.
Speaker 1: The financial markets have it wrong, not that they have
Speaker 1: it wrong, but when financial market valuations are at as
Speaker 1: high as they are, when people's folios are exposed, and
Speaker 1: then you have an uncertainty that is unmeasurable, like trade uncertainty.
Speaker 1: It implores you to add some protection even if it
Speaker 1: has nothing to do with your fundamental macroeconomic outlook can
Speaker 1: be great, and the fundamental macroeconomic outlook can be lagged
Speaker 1: to the financial markets rather than the other way around
Speaker 1: its financial market outcomes. That was my point Earli, about
Speaker 1: financial conditions that lead economies rather than the other way around.
Speaker 1: And so our focus on the economy can be wrong
Speaker 1: if we're trying to manage portfolios there we have to
Speaker 1: focus on risk positions, exogenous factors to the economy like trade,
Speaker 1: trade uncertainty or other factors. And that's I think where
Speaker 1: you can get the put option by. This is the
Speaker 1: FED Decides on Bloomberg Television and Radio and Scarlet Food,
Speaker 1: joined by my co host Accow Master and Jason Kelley
Speaker 1: and with of with us, of course, as always Jeff
Speaker 1: rosen Berg of Black Rock and Scott Myer Minor of
Speaker 1: Even Time. I want to bring up a chart on
Speaker 1: recession because Carol brought up how in August we're talking
Speaker 1: about recession. The fears were all around us, and for
Speaker 1: those of you on radio, what we've seen is that
Speaker 1: the odds of a recession have come down. In August,
Speaker 1: they reached almost according to the New York Fed and
Speaker 1: Bloomberg Economics this model, but it's come down to about
Speaker 1: from the New York FEDS model and thirty three percent
Speaker 1: for Bloomberg Economics. Jeff, When you think about the prospect
Speaker 1: of a recession, what do you look at to get
Speaker 1: a read on that likelihood? Is it the yield curve?
Speaker 1: I mean the New York Clereds models based on the
Speaker 1: yeld curve? Is it that? Or is it something else? Well,
Speaker 1: that's what I was gonna say. It's like, these recession
Speaker 1: probability models are the levels that you get out of
Speaker 1: them are highly dependent on one, do you do you
Speaker 1: put in the yield curve? In two? What's the coefficients
Speaker 1: that you use on the yield curve? And and answer
Speaker 1: your question, you don't want to use the yield curve
Speaker 1: or you can't use the quantity of the yield curve
Speaker 1: in the same way, the yield curve direction is telling
Speaker 1: you the right message, but the size of it is
Speaker 1: not applicable because we changed the nature of the yield
Speaker 1: curve with global QUEI and negative interest rates and so
Speaker 1: that's distorted that measure, and it's probably led to an
Speaker 1: overstatement in the degree of recession probability. The direction is correct,
Speaker 1: I mean, best recession probability indicator is overheating from a
Speaker 1: job market that's overheating, and that's the unemployment rate. But
Speaker 1: the lags from the trough and the unemployment rate to
Speaker 1: the subsequent recession can be quite long, and it's not
Speaker 1: necessarily the case that you get that recession probability in
Speaker 1: the next three or six months the way that these
Speaker 1: models are saying. All right, so Scott, final thought before
Speaker 1: we hear from j Palell in just a few minutes,
Speaker 1: what are you expecting to hear from this very well
Speaker 1: behaved fed chair. Well, exactly. It's always exciting moments here
Speaker 1: and speak. Um, you know, I think you know, I
Speaker 1: think Mike is right. I it will be interesting to
Speaker 1: see whether he gives us some clues about the asymmetry question.
Speaker 1: That is a rearly from the last meeting. They made
Speaker 1: it clear that if they needed to cut rates again
Speaker 1: they were going to do that. Um, I'm not sure
Speaker 1: they're gonna They don't want to take the punch bowl away,
Speaker 1: but I'm not so sure they wanted to emphasize that
Speaker 1: as much as the past. And uh, you know, also
Speaker 1: I think will be interesting to see whether he addresses
Speaker 1: the job report and the signs that things seem to
Speaker 1: be stabilizing and improving. Jeff, what do you think? What
Speaker 1: do you want to hear from him? Yeah? I mean,
Speaker 1: I think this a symmetry question. I think you know,
Speaker 1: whether he answers it more specifically around moving towards average
Speaker 1: inflation targeting, what their concerns are around falling inflation expectations
Speaker 1: as a driver of that shift. Um, I think those
Speaker 1: will be some of the the key some of the
Speaker 1: key issues, and whether or not how much they address
Speaker 1: some of these near term drivers to their decisions, whether
Speaker 1: it's trade or the jobs market, that would be interesting.
Speaker 1: It would be interesting as well. Uh, you know, there's
Speaker 1: this gap with you know, with the tail of to
Speaker 1: Phillips curves, got wage inflation that is accelerating, but it
Speaker 1: is not showing up in broad based inflation. It's part
Speaker 1: of the inflation narrative that says we're worried about this
Speaker 1: lack of inflation, yet we see inflation and jobs markets.
Speaker 1: Will that tip over what are we looking at? What
Speaker 1: are we concerned about there all right. Jeff Rosenberg of
Speaker 1: Black Rock and Googen Hime's Scott Minor. They will be
Speaker 1: rejoining us after j Pale's news conference. We have about
Speaker 1: five and a half minutes to go before j Pale
Speaker 1: begins speaking. This is the FED decides on Bloomberg Television
Speaker 1: and Radio. If you thought someone was missing from our
Speaker 1: coverage this afternoon, you are correct. It is Tom Keene
Speaker 1: and he's actually in London because we decided to move
Speaker 1: him to where the excitement is. Tom and it's not
Speaker 1: in New York and Washington, because the Fed will pretty
Speaker 1: much do as is expected, but it is in London
Speaker 1: where we don't know what's going to happen with the
Speaker 1: election tomorrow. The polls show some tightening here between Labor
Speaker 1: and Conservative, don't they. It's really really interesting. I watched
Speaker 1: very carefully the newscast at six pm here in London
Speaker 1: and there's a couple of messages Scarlett. Really some of
Speaker 1: it goes to the slow economic growth. To Scott, Jeff
Speaker 1: and Michael have been talking about. What's fascinating here is
Speaker 1: one how everyone is worn out by the Brexit debate
Speaker 1: and they are absolutely frustrated by the divisions in the country.
Speaker 1: Within a parliamentary system. We have to remember Scarlett tomorrow,
Speaker 1: there will not be a vote for one prime minister
Speaker 1: one election, even five elections. There's really six hundred plus
Speaker 1: different elections that will call us around Prime Minister Johnson
Speaker 1: or Mr Corbin or maybe one of the so called
Speaker 1: variations of hung parliament. We can get. What's interesting to
Speaker 1: bring it over to the FED meeting today is all
Speaker 1: of this comes from subpar growth and from the subpar
Speaker 1: employment and the underemployment that we see both in the
Speaker 1: United Kingdom and in the United States. Carol is doing
Speaker 1: a little cheer here as you mentioned the words some part.
Speaker 1: I believe Tom said that both of you talked about
Speaker 1: subpar growth. Well, I I think we have to distinguish
Speaker 1: between the growth coming in subpar as a function of
Speaker 1: low potential growth and what we're actually seeing in terms
Speaker 1: of growing When you say subprime, when Tom is talking
Speaker 1: about subprime, it's that our growth levels are lower, and
Speaker 1: that's a function of what Tom's talking about. Elections, fiscal policy,
Speaker 1: political systems and choices on how we construct the economy, incentives,
Speaker 1: the role of government. All of those things change potential
Speaker 1: growth and potential growth is lower. And that's what that
Speaker 1: vote is about in Brexit is what our vote is
Speaker 1: going to be about next year as well, in terms
Speaker 1: of the elections, Tommy want to come back in Yeah,
Speaker 1: I do. With Jeffrey Rosenberg. Jeffreyes some years, losses this week,
Speaker 1: the death of Paul Walker and of course the huge
Speaker 1: death of Marvin good Friend in a way too young age.
Speaker 1: You studied at Carnegie Mellon under the Meltzer School, the
Speaker 1: Freshwater School, and so much of their theme is that
Speaker 1: we would run out of ammunition if we were too accommodative.
Speaker 1: Does this fed into the dot plot that we showed
Speaker 1: earlier and I say good afternoon to Bloomberg Radio worldwide?
Speaker 1: Does this FED risk running out of the ammunition to
Speaker 1: assist the country? I think the good news is that
Speaker 1: the FED has more ammunition. I think Tom you're over
Speaker 1: in the UK. It's closer to Europe where that's a
Speaker 1: much more pressing story, and they are closer to if
Speaker 1: not already ran out of ammunition, Our FED is not.
Speaker 1: It has that potential, but there's enough steepness in the curve,
Speaker 1: there's enough forward guidance, there's enough potential l SAP expansion,
Speaker 1: quey expansion where there's more ammunition for the FED, but
Speaker 1: the longer you use it and the longer your policies
Speaker 1: and the lack of fiscal policy to help your monetary policy,
Speaker 1: which has very much been the case in Europe. UH,
Speaker 1: as long as that exists, it pushes the pressure for
Speaker 1: monetary policy to do more, longer and longer, and that
Speaker 1: exhausts the ammunition. And that's what you've seen in Europe. Scott,
Speaker 1: what do you think, um Tom is in London? I
Speaker 1: want to fold the ball back in here because there's talk,
Speaker 1: of course that if something does happen, if there is
Speaker 1: a shock, the b oh you will need to act
Speaker 1: doesn't matter at this point. Well, I think, look, it
Speaker 1: does matter that they do respond, they don't just sit
Speaker 1: on their hands. But you know, to come back to
Speaker 1: what Jeff was saying, and the question from Tom is
Speaker 1: central banks are there to help smooth out business cycles, right,
Speaker 1: They're not there to solve structural problems. And the issues
Speaker 1: they're facing in Europe, the issues we're facing in Japan,
Speaker 1: and the issues we're facing the United States are all structural.
Speaker 1: We're running out of workers. You know, you can talk
Speaker 1: about regulation. You can talk about productivity, but the reality
Speaker 1: is that if we don't have the factor inputs to
Speaker 1: grow the economy, the economy just slows down. And I
Speaker 1: think that that that turns into a political issue. But
Speaker 1: there's no magic wander, easy fix. We're going to have
Speaker 1: to face the real problems. Alright, final thought from you,
Speaker 1: Mr Keane, were in London. You've got a lot on
Speaker 1: your plates still this week. Well, I think it will
Speaker 1: be very eventful, certainly for the Fed into two thousand twenty.
Speaker 1: There's no question, Jason, it will be eventful for the
Speaker 1: United Kingdom. What am I watching for tomorrow? Of course
Speaker 1: we can't talk about it tomorrow. They have very strict
Speaker 1: polling rules. But in our special coverage tomorrow night at
Speaker 1: five pm New York time and ten pm London time,
Speaker 1: all of that will be wrapped around this tactical voting,
Speaker 1: the idea of choosing even if I don't want to
Speaker 1: vote for candidate B, I'll vote for candidates C because
Speaker 1: it will do something with candidate A completely different than
Speaker 1: what we see in the United States. Tom King joining
Speaker 1: us from London, thank you for making a special guest
Speaker 1: appearance there. Tom of course is in London to cover
Speaker 1: the UK elections. It will be interesting to hear what
Speaker 1: he discusses tomorrow on Bloomberg Surveillance. Is they can't talk
Speaker 1: about the AK elections. I think they're gonna talk about
Speaker 1: the FED, and they're gonna talk about j Powell. And
Speaker 1: this is the FED decides on Bloomberg Television and radio.
Speaker 1: I'm Scarlet Fool alongside Jason Kelly and Carol Masser the
Speaker 1: highlights from the Federal Reserve Chairman's news conference. He was
Speaker 1: a fairly dubbish tone here. He made clear that the
Speaker 1: FED will not raise rates until inflation is at two
Speaker 1: percent or higher. In fact, he said some participants penciled
Speaker 1: in inflation overshoots in their outlooks as well, and in
Speaker 1: response to Michael mckie's question, he indicated that there is
Speaker 1: flexibility on plans to widen expand the balance sheet, including
Speaker 1: perhaps coupon purchases. He mentioned as well that in hindsight,
Speaker 1: the FED rate hikes UH that were taken, including last December's,
Speaker 1: were not a mistake. He said, in terms of an
Speaker 1: update on the FEDS Monetary Policy Framework review, it will
Speaker 1: take until mid and h the idea that nothing is
Speaker 1: going to change is not correct in terms of market impact.
Speaker 1: Investors seemed to like what they heard from J. J. Powell.
Speaker 1: Bonds extending the rally, the ten year yield, and then
Speaker 1: two year old falling stocks turning decisively higher, the US
Speaker 1: dollar sinking. You can see their weakening versus the yen
Speaker 1: at one O fifty two, crude oil extending or should
Speaker 1: say pairing its decline. It had full and as much
Speaker 1: as one point nine percent on an inventory build, and
Speaker 1: gold extending its game. All right, so let's get little
Speaker 1: bit more analysis. Let's bring in Diane Swank. She's grand
Speaker 1: Thorn and chief Economists. She's joining us from Chicago. Still
Speaker 1: with us is Scott Minord, Guggenheim Global CIO and Guggenheim
Speaker 1: Partner's co founder. His firm, by the way, manages over
Speaker 1: two hundred sixty billion in assets, And also still with
Speaker 1: us Jeff Rozenberg, black Rock Systematic Fixed Income Senior portfolio Manager.
Speaker 1: But I do want to start with you, Diane, because
Speaker 1: the scarlet just mentioned overwhelmingly, we're seeing kind of feedback
Speaker 1: um this FED day as being a dovish one. But
Speaker 1: your note to say that the statement of forecasts are
Speaker 1: slightly more hawkish than one would expect. What stood out
Speaker 1: for you, well, I think there's a real disconnect between
Speaker 1: Powell as the dove and much more dovish than many
Speaker 1: of his regional counterparts at the Federal Reserve banks, and
Speaker 1: what what the statement is and what the forecasts are.
Speaker 1: So what we see is a forecast where inflation stays
Speaker 1: below target, yet they don't have rates being cut in
Speaker 1: That doesn't make sense. It should be actually having rates
Speaker 1: being cut. I was surprised that he said all of
Speaker 1: the rate hikes in were not a mistake. I think
Speaker 1: you could maybe argue the first three rate hikes were
Speaker 1: justified given the data we had at the time, but
Speaker 1: the fourth rate hike in December was a mistake. So
Speaker 1: you know, there was a little bit of a pushback
Speaker 1: there from the Fed in terms of what we've seen before,
Speaker 1: more of the humble pie that they were eating and
Speaker 1: sort of eating crow a bit much of this year.
Speaker 1: That was sort of being backed off a bit at
Speaker 1: this um with this statement and the forecast that we saw.
Speaker 1: All right, So Scott, little humble pie, little crow being
Speaker 1: eaten there by j bel do you agree with that?
Speaker 1: What was the tone that you took away well, I
Speaker 1: took away a couple of things. I think the piece
Speaker 1: of information that we got that was important that we
Speaker 1: didn't know, because most of it is a rehashing of
Speaker 1: things that we didn't know, was this small, little off
Speaker 1: comment that he made about what you didn't see in
Speaker 1: the forecast that were written down around inflation, and he
Speaker 1: said something like a number wrote down overshoots on inflation
Speaker 1: as appropriate. And that's important because overshooting on inflation is
Speaker 1: the new framework review about average inflation targeting, and I
Speaker 1: think they're setting up some of that. There's a lot
Speaker 1: of discussion on inflation, a lot of questions about the
Speaker 1: lack of inflation, and I think he's setting us up
Speaker 1: for next year and trying to build that sense of
Speaker 1: credibility and talking about how the FED builds credibility, not
Speaker 1: just in terms of saying we want to target inflation,
Speaker 1: but you need to back it up with with policy actions.
Speaker 1: Mike McKee now joining us. Of course, he stepped out
Speaker 1: of the news conference after it concluded. Mike, you asked
Speaker 1: some questions, very good questions on the b I S
Speaker 1: Report and the REPO market, and the FED chair gave
Speaker 1: indication that there's some flexibility here when it comes to
Speaker 1: expanding the balance sheet, it's a start contrast to what
Speaker 1: we heard last year when he made the comment about
Speaker 1: the balance sheet expansion being on winding down, being on autopia.
Speaker 1: In a couple of different ways, he acknowledged it has
Speaker 1: been quite a year for the FED because, of course,
Speaker 1: at this time last year, the FED was also raising
Speaker 1: interest rates and suggesting they were prepared to continue doing it.
Speaker 1: And uh, he had a little humble pie there suggesting
Speaker 1: maybe they have learned something about visibility and forecasting. But
Speaker 1: in terms of the repo rate, Uh, they think what
Speaker 1: they have in place at the moment, the term repo
Speaker 1: and the overnight repot facility and the sizes of the
Speaker 1: auctions that they're presenting are going to be enough to
Speaker 1: get through a year end. But he said, we are
Speaker 1: looking at regulatory changes. We are looking at the possibility
Speaker 1: of buying coupons instead of te bills, and if we
Speaker 1: see that it's necessary, will do that. Now. Some of
Speaker 1: the things he talked about obviously deep in the weeds
Speaker 1: of the plumbing, like different banks having a different characteristics
Speaker 1: on their balance sheets, that sort of thing, But it
Speaker 1: does show that the FED is paying attention to what's
Speaker 1: going on, even if they are not in the same
Speaker 1: place as some analysts who think trouble is coming. I
Speaker 1: gotta say, Scott, I was watching you as Mike us
Speaker 1: that question, and as J. Powell said, these are very
Speaker 1: important operational matters but unlikely to have any macro economic implications.
Speaker 1: You had a little bit of a did find it
Speaker 1: interesting that, you know, he he left the door open
Speaker 1: subtly that maybe things at the end of the year
Speaker 1: could get a little bit rough, right. The other thing
Speaker 1: which was interesting was sort of like, you know, nothing
Speaker 1: to see here, you can just drive by, right, we
Speaker 1: got it, Yeah, we got it. You know, nothing to
Speaker 1: worry about. But you know, look, we're we'll find out.
Speaker 1: But again I think, uh be good to have some
Speaker 1: cash on hand at the end of the year. Do
Speaker 1: you buy that idea that there's no macroeconomic implications. Well,
Speaker 1: I think that that the FED will work with the
Speaker 1: regulators to fix the problem before it turns into a
Speaker 1: macro One thing about the difference today and two thousand
Speaker 1: and eight. Policymakers were slow to react, and now they're
Speaker 1: on a hair trigger, and and they just don't want
Speaker 1: to let this get out of control. He also said
Speaker 1: that it's not the Fed's job to eliminate all volatility,
Speaker 1: So you could have some volatility around the your end.
Speaker 1: It won't necessarily be macroeconomic changing, game changing volatility, but
Speaker 1: you might have some volatility. Well, and Diane Swan coming
Speaker 1: back in here from Chicago, it's also interesting to sort
Speaker 1: of see maybe a moment where the FED steps a
Speaker 1: little bit out of this very harsh spotlight. It feels
Speaker 1: like it's been in for this entire year, and certainly
Speaker 1: what a difference from a year ago, as you alluded to,
Speaker 1: what does that mean for investors maybe in the short
Speaker 1: and mid term if the FED is not as big
Speaker 1: of a concern. Well, I think they really do want
Speaker 1: to be on the sidelines. They don't want to be
Speaker 1: part of election year politics. That said, I think some
Speaker 1: of the points that Jeff made earlier about the FED
Speaker 1: wanting to overshoot on inflation, they're really setting the stage,
Speaker 1: even though it's not in their dot plots that you know,
Speaker 1: Sharon Paulle is pretty clear to say, don't look too
Speaker 1: much at those because they're out of context. But the
Speaker 1: idea is that he is more devish than what we
Speaker 1: were seeing out there, and I think the idea that
Speaker 1: there's more slack in the labor market and you'd really
Speaker 1: need to see wage is with a little heat in
Speaker 1: them to really feel like the labor market was hot.
Speaker 1: Those are suggesting that the FED actually has a much
Speaker 1: lower threshold to cut rates and raise rates. And I
Speaker 1: think we still will see an additional rate cut at
Speaker 1: least one next year, if not more than that. And
Speaker 1: that's something that the FED doesn't want to say up front,
Speaker 1: but I think the Fed, I think chair and Poell
Speaker 1: is more than ready to do and he's been able
Speaker 1: to get the votes even when it was tight. That's
Speaker 1: exactly what I was going to ask you about. So
Speaker 1: you expect potentially one more rate cut in is recession
Speaker 1: at all on your radar, Diane? What's still on my radar?
Speaker 1: Because we still don't know exactly what's going to happen
Speaker 1: and how long. Um we'll hit the pause button on trade.
Speaker 1: If we can hit the pause button on trade and
Speaker 1: roll back some of these tariffs, we can certainly do
Speaker 1: well and continue through without a recession. If we were
Speaker 1: to see some kind of reaction function in a few
Speaker 1: months where all of a sudden, the delay in tariffs
Speaker 1: were taken back and we were seeing an escalation and
Speaker 1: trade again with China that would change the equation up
Speaker 1: the antien risks and trade on interests of a recession again.
Speaker 1: I think that is where we're at. The good news
Speaker 1: is we seem to be de escalating at the moment
Speaker 1: and that gets us a little wiggle room. But his
Speaker 1: chairman Paul was very careful to point out even with
Speaker 1: the U s m c A getting passed, it doesn't
Speaker 1: raise lift avail of uncertainty with China. And even then,
Speaker 1: you know, we still have uncertainty if we keep the
Speaker 1: tariffs in place that we have in place. There still
Speaker 1: is uncertainly about with trade policy will be post election year.
Speaker 1: We're all highly attuned to the facial reactions that you
Speaker 1: guys have. Scott, you raise your eyebrows when Diane talked
Speaker 1: about a possible rate cut in Well, you know, I
Speaker 1: really appreciate it when people disagree with me, because I mean, seriously,
Speaker 1: you know, Diane's a great economist, and uh, you know,
Speaker 1: I like people that can can give me something to
Speaker 1: think about because you know, look, you know, I actually
Speaker 1: invest money, right and unfortunately, my clients pay me to
Speaker 1: have an opinion and so I have to have an opinion,
Speaker 1: and uh, you know, and so the one thing I
Speaker 1: always find about having an opinion is the only thing
Speaker 1: that can happen if it could go wrong. Right, So
Speaker 1: you want to hear somebody else give you a really
Speaker 1: strong argument, and uh, you know, while I don't agree
Speaker 1: with Diane, I think that I have a lot of
Speaker 1: confidence that President Trump wants to get reelected and he
Speaker 1: will probably tone things down. Uh. And you know, look,
Speaker 1: I wouldn't be surprised if you know, on Sunday, you know,
Speaker 1: we see a tweet about you know, he's really good
Speaker 1: friends with she and President She and the president. She's
Speaker 1: making lots of headway and you know, we're buddies and
Speaker 1: we're gonna get together happen in election years. Right. Oh yeah,
Speaker 1: that is that is the assumption, by the way. But
Speaker 1: I agree with you on that assumption. That said, there's
Speaker 1: a lot that can go wrong with China in um
Speaker 1: in the next twelve months. Well, I think Diana, that
Speaker 1: that the the issue with you know, China going bad
Speaker 1: in the next twelve months. We you know, that's about
Speaker 1: how long it is till the election. And I think
Speaker 1: that he doesn't want to risk that in the face
Speaker 1: of the election. I do agree with you, there's a
Speaker 1: lot here they can go bad. But you know, I,
Speaker 1: as I say, I'm I've got to have an opinion.
Speaker 1: So I'm gonna go with Donald Trump wants to be
Speaker 1: president again. So all right, Mike, we Ki jump in here.
Speaker 1: I know you have a question. Well, it kind of
Speaker 1: follows from all of that. I guess I'll pose it
Speaker 1: to to Scotter dug given the events of the past year,
Speaker 1: given the fact that a year ago J. Powell kind
Speaker 1: of stepped in it at this press conference by suggesting
Speaker 1: that we were going to face the status quo? Can
Speaker 1: you really come up with a long term horizon trade
Speaker 1: based on the FED given how they've shown they don't
Speaker 1: seem to have a lot of visibility either. Well, you know,
Speaker 1: one thing, Mike that I always like to reinforce with
Speaker 1: people is I think we all need to have more
Speaker 1: confidence in the willingness and ability of our government to
Speaker 1: print money. And so the thing that I know I
Speaker 1: can fall back on is the comment I made earlier,
Speaker 1: uh to Scarlet, which is the feed is on a
Speaker 1: hair trigger, and we we see that, you know, the
Speaker 1: first sign of turbulence in December, they were willing to
Speaker 1: go on hold and reconsider everything. And if you look
Speaker 1: at the stock market, the minute they went on hold
Speaker 1: and Williams went out and did the mop up exercise.
Speaker 1: After that meeting, stocks came roaring back. So, you know,
Speaker 1: it's not clear that we had to have all this,
Speaker 1: but at the end of the day, things weren't doing
Speaker 1: so bad before we stopped and we started cutting rates.
Speaker 1: But clearly they want an insurance policy that this thing
Speaker 1: is going to stay on track. Jeff, what are your
Speaker 1: thoughts on all this? Yeah, Look, I think Diane and
Speaker 1: Scott are laying out these these kind of two sides
Speaker 1: of the argument, but the core of that argument rests
Speaker 1: on you know, can you get in the mind of
Speaker 1: the president and his decision anyone? Do you do you
Speaker 1: feel lucky about there's a lot of shots. I'm not
Speaker 1: sure how many bullets are left in that round. Uh
Speaker 1: So that's that's the part. It's not risk, it's it's
Speaker 1: it's uncertainty and you can't measure it. And you know,
Speaker 1: you can take both sides. I think I think what's
Speaker 1: clear is that this is the issue, and Sunday may
Speaker 1: give us a little bit of a of a kick
Speaker 1: that can uh down the road. Um, But you know
Speaker 1: you got to have an opinion. It's just what do
Speaker 1: you base the opinion on. And I find it hard
Speaker 1: to want to put a lot of my investor's money
Speaker 1: writing on an assessment of somebody. I have no idea
Speaker 1: how to how to judge. But you know it's like
Speaker 1: the old rush song. You know you can choose not
Speaker 1: to decide, you still have made a choice. So if
Speaker 1: you if you don't quotes Rushman, come on back in
Speaker 1: on this, Diane. What are your thoughts here in terms
Speaker 1: of the election and the impact above my pay grade?
Speaker 1: You know, I mean, you know talking about I can't
Speaker 1: imagine a scenario where this election year adds certainty rather
Speaker 1: than uncertainty. Um, even if we hit the pause button
Speaker 1: on trade, So that still is out there, and I
Speaker 1: think that's something that we have to deal with. That
Speaker 1: doesn't mean the economy falls apart. What does matter is
Speaker 1: if there is as much as the FED is on
Speaker 1: a hair trigger, they don't have a lot of triggers
Speaker 1: left to pull. And on the flip side of it,
Speaker 1: we also know that in the speed of a tweet,
Speaker 1: policy can change on trade and that's a hair trigger
Speaker 1: as well. And that's something, as I said above, my
Speaker 1: pay grade to forecast. I know Scott has to have
Speaker 1: an opinion, Jeff has to have an opinion. I appreciate
Speaker 1: that this is such a amazingly uh kind disagreement. I
Speaker 1: have thought that's how we do it here. Well now
Speaker 1: seems as much as time. Well, I appreciate it, and
Speaker 1: it's worth it to challenge all of us. We all
Speaker 1: want to be challeng absolutely well. It's worth bringing in
Speaker 1: as well the idea of political pressure from the top
Speaker 1: and someone who has handled it well in the past.
Speaker 1: Of course, this week we saw the passing with giant
Speaker 1: in the finance world and in the world of central banking,
Speaker 1: Paul Volker, of course, passing away the age of ninety two.
Speaker 1: There's a recent Bloomberg opinion piece written by the former
Speaker 1: Boe governor Mervin King. He says Vulgar established his reputation
Speaker 1: at the FED as an inflation flight fighter between seventy
Speaker 1: nine and eighty three, when short term rates rose to
Speaker 1: more than double digit inflation was conquered a long time ago.
Speaker 1: That episode did more than anything to convince people of
Speaker 1: the need for the fed's independence. And it proved how
Speaker 1: vital it is for central bankheads in particular to resist
Speaker 1: political pressure, often from the very top. Now, clearly we
Speaker 1: don't know what the President is going to do, but
Speaker 1: we know that he will likely say something. But I
Speaker 1: do want to get everyone's thoughts on the legacy of
Speaker 1: Paul Volcker and whether um, as one reporter asked j Powell,
Speaker 1: he cast a long shadow over the FED in terms
Speaker 1: of how they think about fighting inflation and the scourge
Speaker 1: of inflation. Well, you know, I think he did, um
Speaker 1: and and the reason I say that is for thirty
Speaker 1: years we were we were concerned about pre emptive tightening
Speaker 1: to stop inflation. And I think what we just lived
Speaker 1: through last year was the sort of you know, ingrained
Speaker 1: legacy of we got to get ahead of inflation before
Speaker 1: it takes off. I think what policymakers have discovered is
Speaker 1: that deflation can just be as threatening us inflation. And maybe,
Speaker 1: you know, the Vulkers leaning against inflation was appropriate for
Speaker 1: the time, but we've we've moved beyond that. Jeff. It's
Speaker 1: got a few minutes ago mentioned printing money, and of
Speaker 1: course we live in an era. We were just speaking
Speaker 1: earlier this week with Stephanie Kelton about modern monetary theory.
Speaker 1: I mean, Paul Looker had some thoughts on that, to
Speaker 1: to say the least, But this feels like a different
Speaker 1: era in a lot of ways. Well, it absolutely is
Speaker 1: a different era because that was an era of inflation,
Speaker 1: the anchored inflation expectations, and where the policy challenge of
Speaker 1: the day was to rain those inflation and inflation expectations.
Speaker 1: In today, it's different, and that's why we're talking about
Speaker 1: printing money and modern monetary theory, because we're challenged on
Speaker 1: too little inflation, and so it is a very a
Speaker 1: different era. Uh. And folks of an inflation fighting earraw
Speaker 1: might look at what we're talking about today with shock,
Speaker 1: but some of them, including Volker, could recognize that the
Speaker 1: challenges were different and so the prescriptions uh for solving
Speaker 1: them are different. So, Diane, in terms of the prescriptions
Speaker 1: that we need inflation versus deflation, it sounds like you'd
Speaker 1: be a litt bit more concerned about deflation at this point. Well,
Speaker 1: I think you know, the fat is still I mean,
Speaker 1: you know, Paul went on at length of what he
Speaker 1: would inquire to see a hot labor market, you know,
Speaker 1: wages really heat. We need some heat out there. We
Speaker 1: still don't have the heat. And you know what's interesting
Speaker 1: too about the labor market is as good as things are,
Speaker 1: the labor market for new college grads and college grads
Speaker 1: in general is still worse than it was in late
Speaker 1: That's another little caveat that we keep missing. We've got
Speaker 1: more under employment than we once did, so even though
Speaker 1: wages are accelerating at the entry level, we're still not
Speaker 1: seeing that move up into the higher level, the management levels.
Speaker 1: We've talked about that a lot in the past. I
Speaker 1: also would add one little caveat on a legacy of
Speaker 1: Paul Woker. He pushed hard against the deregulations that we
Speaker 1: saw in the nineteen eighties, and that's one of the
Speaker 1: reasons he had to resign from his position because he
Speaker 1: got out overruled on regulation by his other FED governors
Speaker 1: um in seven. I think it's important to think he
Speaker 1: also was one that was warning about the concerns of
Speaker 1: what his legacy is, his long expansions, which also come
Speaker 1: with complacency, and he's worried about how far we could
Speaker 1: get stoke financial bubbles today. Well, that's a great way
Speaker 1: to end the conversation. Our thanks to Diane's Wanka, Grant Thornton,
Speaker 1: Googen Himes At, Scott my nerd Black Rocks, Jeff Rosenberg,
Speaker 1: and of course Bloomberg's Michael McKee down there in Washington. Well,
Speaker 1: you're listening and watching the FED decides on Bloomberg Television
Speaker 1: and Radio. I'm Jason Kelly, alongside Carol Master and Scarlet Food.
Speaker 1: Let's listen to some of the highlights from FED Chairman
Speaker 1: j Powell's news conference. With our decisions through the course
Speaker 1: of the past year, we believe that monetary policy is
Speaker 1: well positioned to serve the American people by supporting continue
Speaker 1: to economic growth, a strong job market, and inflation near
Speaker 1: our symmetric two gold. While low and stable inflation is
Speaker 1: certainly a good thing, inflation that runs persistently below our
Speaker 1: objective can lead to an unhealthy dynamic in which longer
Speaker 1: term inflation expectations drift down, pulling actual inflation even lower.
Speaker 1: In order to move rates up, I would want to
Speaker 1: see inflation that's persistent, uh, and that's significant, A significant
Speaker 1: move up in inflation that's also persistent before raising rates
Speaker 1: to address inflation concerns. That's my view. Looking ahead, we
Speaker 1: will be monitoring the effects of our recent policy actions,
Speaker 1: along with other information bearing on the outlook, as we
Speaker 1: assess the appropriate path of the target range for the
Speaker 1: federal funds rate. Of course, if developments emerged that caused
Speaker 1: a material reassessment of our outlook, we would respond accordingly.
Speaker 1: Policy is not on a preset course. All right, Well
Speaker 1: here with this in New York City to wrap up
Speaker 1: today's decision, Carl Ricka, Donna Bloomberg, I Canot's chief US
Speaker 1: connois and our Jersey Bloomberg Intelligence chief US interest rate strategist. Alright, gentlemen,
Speaker 1: you've had some time to just synthesize it, analyze it all. Carl,
Speaker 1: take it off with you. What do you hear from
Speaker 1: J Pow? This is a FED that's increasingly confident that
Speaker 1: three cuts was the magic number, or they're going to
Speaker 1: sit back. The hurdles are high for additional action, even
Speaker 1: though the dot plot shows that the next move will
Speaker 1: be a rate hike. In fact that the current time,
Speaker 1: the hurdle for a hike is actually higher than additional easing.
Speaker 1: So the Fed today told us we'll see you on
Speaker 1: inauguration day. Does it change anyway? Thinking about what happens
Speaker 1: in terms of rate moves or the economy, the economic outlook.
Speaker 1: This is a FED that's on hold, and I think
Speaker 1: that probably not not so much today changed my thinking,
Speaker 1: but the resilience we've seen in the labor market over
Speaker 1: the last couple of months tells me that we will
Speaker 1: be able to execute a soft landing here. Consumers do
Speaker 1: have the spending power to carry us through until conditions
Speaker 1: hopefully improve in twenty twenty. But if the trade talks
Speaker 1: go poorly over the next couple of days and all
Speaker 1: bets are off, I wrote, what about you. I know
Speaker 1: you're listening carefully to all the comments about the repo mark,
Speaker 1: you know, the repo stuff. I thought it was really interesting,
Speaker 1: in particular that j Pali said that they might tweak
Speaker 1: regulations and rules for banks in order to uh quell
Speaker 1: some of the things like interday liquidity and maybe make
Speaker 1: repo a little bit less balance sheet intensive. And I
Speaker 1: think that is something that is probably needed. It's probably
Speaker 1: not the only issue that the repo market has been having,
Speaker 1: but it's certainly a big one. And I think the
Speaker 1: fact that they acknowledge that and also moved away from
Speaker 1: the idea that they're going to use a standing repo facility,
Speaker 1: and that's gonna come out anytime soon. So I think
Speaker 1: those are the two things that came out of here
Speaker 1: that we're really new. One of the things that we
Speaker 1: discussed is when j Powell said, in response to Mike
Speaker 1: McKee's question that they're very important operation matter, but unlikely
Speaker 1: but unlikely to have any kind of macro economic implications
Speaker 1: as a result. Is he right, Yeah, so you agree
Speaker 1: with So I do agree. I think that the only
Speaker 1: real macroeconomic implication for for any change to these regulations
Speaker 1: and to the repo market is if repo rates were
Speaker 1: persistently very high, because that would make funding treasuries even higher,
Speaker 1: and that would actually have the effects of probably steepening
Speaker 1: the yield curve a little bit and making yields higher
Speaker 1: than they should be. And that's one of the reasons
Speaker 1: why the FED needs to focus on this and needs
Speaker 1: to make sure that treasuries are well funded and the
Speaker 1: kind of the grease around the wheel bearings and really
Speaker 1: really lubricated. Otherwise you can wind up with, you know,
Speaker 1: a very squeaky wheel and if you don't want it
Speaker 1: to fall off and create volatility in all the markets. Alright,
Speaker 1: So Carl Roydonna. A year ago, J Bell stood up
Speaker 1: in front and sort of unwittingly, I think, unleashed a
Speaker 1: whole series of events that made for a very interesting
Speaker 1: back half of December. Very well behaved reading his script,
Speaker 1: J Pell today, is he reflecting, well, what's going on
Speaker 1: in the broader economy? I think he is, and I
Speaker 1: think he learned from that experience last year, where not
Speaker 1: that they were not aware of what was happening in
Speaker 1: the economy, but the market was already down something like
Speaker 1: twelve going into that meeting, and then they tried to
Speaker 1: be economic cheerleaders and that just came across as tone deaf,
Speaker 1: and things got worse as the A quarter war on,
Speaker 1: and then Christmas Eve was kind of the crescendo of it. All.
Speaker 1: Um this time around that they're being very cautious, very
Speaker 1: well choreographed, well telegraphed. Everyone was clearly singing from the
Speaker 1: same hymnal following the October meetings. So what today was
Speaker 1: really not a surprise in any any shape or form.
Speaker 1: Go ahead, you know how much of a factor is
Speaker 1: the FED then for the next couple of weeks, because
Speaker 1: they've made clear what their stances they're in wait and see,
Speaker 1: and they don't really see an impetus to do very much. Yeah,
Speaker 1: I think that the you know, with the FED on hold,
Speaker 1: and like you know, Carl, Carl and his team think
Speaker 1: that the Fed's probably gonna be on hold at least
Speaker 1: until we get you know, very significant changes in the
Speaker 1: in the data momentum. So I think that over the
Speaker 1: next couple of weeks for the FED, they're really going
Speaker 1: to focus on this year end. I mean j Pal
Speaker 1: even said it. So tomorrow, the FED at around three
Speaker 1: o'clock is going to come out with a new schedule
Speaker 1: for repurchase agreement operations and I think they're gonna add one,
Speaker 1: maybe two more term operations that are going to go
Speaker 1: over year end and increase the sizes. So they've been
Speaker 1: doing these two week operations they roll off, two of
Speaker 1: them roll off next week. They've been about thirty five
Speaker 1: billion and undersubscribed, so I think they're gonna raise that
Speaker 1: to maybe forty five or fifty billion, and that way
Speaker 1: they're going to inject as enough liquidity to kind of
Speaker 1: quell these fears that I think a lot of people
Speaker 1: are talking about. I thought it was interesting what Diane
Speaker 1: Swank had to say about maybe another interest rate cut come.
Speaker 1: Is that even likelihood in terms of what we're seeing
Speaker 1: in the market, Well, the market, the market is still
Speaker 1: pricing for the better than even odds of a cup
Speaker 1: by the end of next year, but it's kind of linear.
Speaker 1: So I feel like it's the market kind of discounting
Speaker 1: volatility in the economy and maybe a bad case in
Speaker 1: both trade and something going on with the election, But
Speaker 1: you know, the markets, the market certainly thinks that an
Speaker 1: ease is much more likely than a hike at this point.
Speaker 1: The the election poses a big hurdle for the FED
Speaker 1: to actually tighten policy next year, as does the fact
Speaker 1: that the FED has undershot on inflation something like at
Speaker 1: the time of the time since two thousand and nine,
Speaker 1: so they're willing to let it run a little bit hot.
Speaker 1: I can't see a hike next year, but certainly if
Speaker 1: we lose momentum, if growth momentum looks like it's going
Speaker 1: to dip a little bit further, how the FED could
Speaker 1: be a force back into action, even though that's not
Speaker 1: what the dot plots reflecting. And the final point I'll
Speaker 1: make is that pick your favorite spring holiday. Whatever the
Speaker 1: FED is doing in the spring of an election year.
Speaker 1: They tend to keep doing that through the elections. So
Speaker 1: if they're in slow hiking mode, they'll continue in slow
Speaker 1: hiking mode. If they're on hold, they'll stay on hold
Speaker 1: through the election. Carl, quick question for you, last question
Speaker 1: trade geo politics. What's the biggest worry inflation? Employment? What's
Speaker 1: the biggest worry for J. Polle at this point? For J. Pale,
Speaker 1: at this point, I think it's trade. He acknowledged that
Speaker 1: that was the big unknown variable forward this year as
Speaker 1: he reflected on, you know how the Fed could have
Speaker 1: maybe orchestrated policy differently. Uh, And certainly if things seem
Speaker 1: to unravel in the current trade negotiations, which earlier today
Speaker 1: the Wall Street Journal noted that the senior negotiators in
Speaker 1: China hadn't spoken in ten days with the scene your
Speaker 1: negotiators in the US. So if trade falls apart, that
Speaker 1: could certainly up end the feds well intended plans. Cal RICKA.
Speaker 1: Donna of Bloomberg Economics and Ira Jersey of Bloomberg Intelligence,
Speaker 1: thank you both so much. We have a stock market
Speaker 1: that is in the green right now. The SMP up
Speaker 1: a quarter of one percent, bon yields are lower, the
Speaker 1: dollar is sinking as well or falling, you should say,
Speaker 1: and uh, President Trump has not tweeted on the FED.
Speaker 1: That does it for our spread special on Bloomberg Television
Speaker 1: and radio. Thanks for listening to Bloomberg Business Week. You
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